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Reality check: the true cost of living
Salaries make up a big chunk of your total expenses, but when team members cover their basic living expenses, there may not be much left.
IT'S NO SECRET THAT THE SAME standard of living requires a different salary in different cities. For instance, according to The New York Times Job Market Salary Comparison and Salary Calculator, a team member making $26,000 in Louisville, Ky., would need to make $28,860 in Reno, Nev., to have the same standard of living because it's 11 percent more expensive to live in Reno. Yet employers typically pay only 6.4 percent more in Reno than in Louisville, so a team member in Reno has $1,206 less in disposable income, according to this calculator.
The cost-of-living index for each city is based on relative price levels for consumer goods and services. Overall, consumers in the United States, hand over 13 percent of their total spending for grocery items, 29 percent for housing, 10 percent for utilities, 9 percent for transportation, 4 percent for health care, and 35 percent for miscellaneous goods and services (which includes fast food, haircuts, toiletries, clothing, entertainment costs, and so on), according to data from the second quarter of 2004 though the first quarter of 2005 from www.coli.org.
Figure 1
After all is bought and paid for, there may not be much left. If a team member makes $25,000 a year after taxes, this leaves $24 a day for clothes, babysitters, pet costs, entertainment, savings, household purchases, education and school loan payments, emergencies, and other miscellaneous items.
Looking at the personal expenses picture differently, the average American works 30 days a year to pay for food. So, if an employee makes $30,000 per year, or $115 per workday, $3,450 goes to food each year. That's 12 percent of his or her total salary. When you include holidays and weekends, this team member could afford to spend $9 a day on food. (See Figure 2 for a breakdown of where the days go.)
Figure 2
It's easy to see why employees might start looking around for a better paying practice if yours doesn't keep up with the cost of living. Not sure whether you're keeping up? The cost-of-living adjustment (COLA) is based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers, which is determined and published by the Bureau of Labor Statistics, Department of Labor. It's the amount you'll have to increase pay to keep up with the standard of living—typically less than 3 percent a year. (For more on keeping up with the COLA, see "Do Your Raises Keep Up with the Times?" at www.vetecon.com.)
